The false promise of a demographic dividend

Much is made out of the proportion of youth in India’s population and what it could mean for its economy and progress. However, statistics and trends in education and employment within this group do not paint a promising picture, points out Kannan Kasturi.

In a widely reported speech, the Prime Minister recently claimed that the 21st century can belong to India as it has three assets that no country has: ‘democracy’, ‘demand’ and ‘demographic dividend’.

‘Demographic dividend’ has become a much bandied phrase in recent years. The allusion is to India’s current demographic state where the ratio of the working age population to the dependent population (the children and the elderly) is near its peak, a situation that will last another 20 to 30 years. Having a greater proportion of people in the working age group can mean faster per capita economic growth, but only if their full potential is realised. A look at the state of employment in the country shows that India is still far from deriving any real advantage from its demographic dividend.

Data on employment in India is provided by three different agencies - the National Sample Survey Organization (NSSO), the Labour Bureau and the decadal Census. The three agree broadly on the worker and student populations. It is in identifying the unemployed from among the non-working population that they come out with widely varying estimates.

There are several reasons for this. One among them is the difficulty in determining if women engaged in housework, particularly in rural India, are doing so under duress, being unable to find a job. Another dilemma lies in deciding if youth, nominally enrolled in educational institutions but still looking for a job, are part of the labour force. Problems also arise in deciding if workers who work in casual jobs for short durations are to be considered among the working or the unemployed.

The census, which counts those not working (even part time) but “seeking or available for work”, shows up a far higher level of unemployment than both the NSSO and the Labour Bureau sample surveys of contiguous years. In the following discussion, the unemployment numbers are from Census 2011 released in September 2014.

In 2011, over 56 million people aged 15 and above who were not working were either seeking or available for work, putting the unemployment rate at 10.7 percent. This, however, did not capture the full force of job seekers. Just short of a quarter of the work force was comprised of “marginal workers” – workers who were able to find work for less than 6 months. Nearly half of the marginal workers were also “seeking or available for work” taking the count of job seekers to nearly 21 percent of the labour force.

Youth and unemployment

Further insights into unemployment may be gained by looking at the new entrants to the workforce. The transition from education to work happens between the ages of 15 and 29. As NSSO data shows, around 90 percent of children below 15 are enrolled in school while above the age of 30, the numbers attending educational institutions are miniscule.

Chart 1 below shows unemployment rates derived from the 2001 and 2011 census for different age groups with a focus on new entrants to the workforce. Unemployment rates across all age groups have increased between 2001 and 2011, a period of high growth in the Indian economy! Jobs have clearly not kept pace with the increase in job seekers.

Chart 1

The age – unemployment relationship is also striking. Unemployment is highest in the 15-19 age group and decreases progressively for higher age groups. For youth aged 15-29 as a whole, the unemployment rate is 21 percent (counting only those seeking or available for jobs among the non-working) compared to 5 percent for people aged 30 and above.

If one probes deeper, young men (15-29) are found to account for nearly 85 percent of total unemployment among men in 2011! (Young women account for over 61 percent of total unemployment among women) Clearly, the new entrants to the workforce bear the brunt of unemployment.

Education and unemployment

The other dimension of youth unemployment that needs to be explored is its connection to education.

A significant trend in recent years has been the increased proportion of boys and girls opting for higher schooling as seen in Chart 2 showing NSSO 2012 data. The shift in favour of education also extends to young adults between 20-24 years, who would typically be enrolled in a college diploma or degree course.

Over 25 percent of young men in this age group were studying in 2012. The increased percentage of youth attending educational institutions in 2012 (compared to 2005) is because of a lower fraction going for work.

Chart 2

But what does the increased enrolment in education mean for the composition of new entrants to the labour force? Chart 3 below shows the educational composition of the youth (15-29) labour force and the youth unemployed in 2005 and 2012 using NSSO survey data. (While NSSO surveys underestimate unemployment compared to the Census, this is unlikely to affect the overall trends seen in the data.)

Chart 3

The comparison of the situation in 2005 with that in 2012 outlines several trends.

One is that the young entrant to the labour force is increasingly more educated. The second is that it is not the illiterate who are most likely to be unemployed. The relatively better educated youth – those with secondary and higher qualification – have a far greater share in total unemployment than in the labour force. In other words, unemployment is higher in more educated sections of youth. Finally, the share in unemployment among the most educated section – the youth with diplomas and degrees – has actually increased over time.

Points to ponder

What makes it harder for the more educated youth to find jobs? Higher the level of education, higher is the expectation from a job and clearly there have not been enough jobs created to meet such expectations. On the other hand, the less educated youth, most likely from poorer families, are more likely to settle for just about anything, whether it is a casual labourer’s job or unprofitable self-employment. The high unemployment among the educated youth in particular reflects the lack of growth of jobs in the organised manufacturing and services sectors.

In summary, what is evidently clear is that India faces a severe problem of unemployment among the youth, with the relatively better educated sections worse off than the rest. The problem has actually worsened in the decade between 2001 and 2011, with the economy unable to expand jobs for the educated youth fast enough despite high GDP growth.

With trends showing more young individuals opting for longer years of education, the future entrants to the labour force are going to be relatively more educated but that could only mean greater employment challenges.

Against this backdrop, there is absolutely no reason for optimism that India will benefit from its demographic dividend any time in the near future. Instead of indulging in empty talk, the government needs to present a concrete roadmap of the steps it is taking to promote employment-intensive economic growth.